EPWN Epwin Group Plc

11 September 2024

This announcement contains inside information for the purposes of Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310 (as amended). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

Epwin Group Plc

("Epwin" or the "Group")

Half year results for the six months to 30 June 2024

Underlying operating profit in line with a strong 2023 comparative; confident of achieving full year expectations

Epwin Group Plc (AIM: EPWN) ("Epwin" or the "Group"), the leading manufacturer of energy efficient and low maintenance building products, with significant market shares, supplying the Repair, Maintenance and Improvement ("RMI"), new build and social housing sectors, announces its unaudited half year results for the six months to 30 June 2024 ("H1 2024").

Financial highlights

(1) Stated before amortisation of acquired other intangible assets, share-based payments and other non-underlying items.

(2) Covenant net debt and covenant net debt to adjusted EBITDA represent pre-IFRS 16 measures.

(3) Underlying operating cash conversion is pre-tax operating cash flow as a percentage of underlying operating profit.

Financial headlines

·    Trading remains resilient despite challenging environment:

o  Continued improvement in underlying operating margin to 7.6% (HY23: 6.6%)

o  Revenues behind a strong H1 2023 comparative, as a result of lower PVC input prices reducing previously levied surcharges and subdued demand in the Group's core markets

o  Responsible management of balance between volume and margin to deliver underlying operating profit slightly ahead of a strong prior year comparative

o  Group remains highly cash generative, with pre-tax operating cash inflow of £15.8 million (HY23: £19.1 million) and underlying operating cash conversion of over 130%

·    Robust financial position:

o  Covenant net debt of £19.5 million remained at 0.6x adjusted EBITDA; the increase from year end being due to working capital seasonality, in addition to £3.3 million being deployed on the share buyback programme and payment of £4.0 million final dividend

o  Robust balance sheet, with in excess of £55 million headroom on banking facilities to support strategic objectives

o  Banking facilities recently extended to August 2027  

·    Shareholder returns boosted:

o  £7.3 million returned to shareholders during the period

o  Extended share buyback programme announced in April 2024 close to completion

o  Intention to extend share buyback programme for a further 5 million shares

o  Interim dividend of 2.10 pence per share declared, an increase of 5% on H1 2023

Operational and strategic headlines

·    Continued delivery of our strategy:

o  Operational improvement:

§ Sharp focus on operational and manufacturing efficiency driving margin improvement

§ Roll-out of consolidated IT system across distribution network completed, commercial and operational benefits starting to be realised

o  Value enhancing acquisitions:

§ Bolt-on acquisition expanding trade counter network in Scotland

§ Acquired a further GRP moulding business for £1.3 million early in H2

§ Healthy pipeline of potential acquisitions

o  Sustainability:

§ Continued focus on energy usage, production efficiency and increased processing of recycled materials

§ Further investment in reporting capabilities and development of sustainability framework and targets

Current trading and outlook - 2024 results anticipated to be in line with consensus* expectations

·    Q3 trading to date has followed a similar trend to the first half of the year

·    Well-positioned when markets recover, on the back of an improving economic outlook, although demand is expected to remain subdued through H2 2024

·    Continuing focus on managing the balance between volume and margin, maintaining customer service levels and driving further operational efficiencies

·    Board remains confident of delivering 2024 results in line with market consensus* expectations

·    Medium and long-term drivers for the Group's markets remain positive:

o  Shortage of new and affordable homes, new government committing to increasing the number of homes built

o  Poorly maintained, underinvested and ageing housing stock

o  Increasing concern about the quality of social housing

o  Net zero driving need to decarbonise the UK housing stock and improve the energy efficiency of homes 

Jon Bednall, Chief Executive Officer, said:

"Trading in the first half was consistent with the Board's expectations, with underlying profit in line with a strong 2023 comparative, despite challenging markets. We remain confident of achieving our full year expectations, with a further year of profit progression and business development.

We retain a positive view of our future prospects and believe a market recovery is now more likely during 2025. Looking further ahead, the medium and long‐term drivers for the Group's products continue to be positive, whilst our strong balance sheet will enable us to continue to invest for growth both organically and by selective acquisitions."  

*Based upon Company collated average analyst consensus for FY24 underlying operating profit which the Board believes to be £25.8 million (within a range of underlying operating profit expectations of £25.6 million to £26.1 million)

Contact information

Forthcoming dates:

Ex-dividend date                              19 September 2024

Dividend record date                     20 September 2024

Dividend payment date                                8 October 2024

About Epwin

Epwin is the leading manufacturer of energy efficient and low maintenance building products, with significant market shares, supplying the Repair, Maintenance and Improvement ("RMI"), new build and social housing sectors.

The Company is incorporated, domiciled and operates principally in the United Kingdom.

Information for investors can be accessed at www.epwin.co.uk/investors

Group business review

Trading and results

The Group is pleased to report another resilient performance against a market backdrop that continued to be challenging. Demand remained subdued in the new build and RMI markets during the first half of the year, driven by ongoing macroeconomic challenges, with the picture complicated by poor weather and uncertainty regarding the timing and outcome of the general election. Against this difficult backdrop, the Board is pleased to note that the Group adapted well and traded in line with its expectations.

Revenue of £158.0 million was 12% below a strong comparative of £180.0 million, as a result of lower PVC input prices reducing previously levied surcharges and demand remaining subdued in new build and RMI markets, as widely reported across the sector. Underlying revenues, excluding surcharges, were 8% lower than H1 2023 but only 2% behind H2 2023.

Competitive pricing pressures have been a factor in some parts of the business, particularly our distribution network, and the Group continues to take a disciplined approach to pricing to protect both profit margins and market share.

Underlying operating profit of £12.0 million was slightly ahead of the comparative period (HY23: £11.9 million), but represents a significant enhancement in underlying operating margin, which improved by 100 basis points on HY23, to 7.6%, and a further increase on the FY23 operating margin, as a result of easing raw material price inflation and a sharp focus on operational efficiencies.

The Group has continued to see inflationary pressures easing, with some moderation of key input costs, including electricity and PVC resin prices. However, wage inflation continues to be a factor, particularly following increases in the National Living Wage. As a result, the Group continues to implement pricing actions where and when necessary.

Key financials

Segmental results

Extrusion and moulding

·    Revenues reduced by 15% compared to the comparative period, primarily due to the impact of lower PVC input prices reducing previously levied surcharges and reduced volumes due to lower levels of demand in the new build and private housing RMI sectors

·    Steps taken by the business, during 2023 and continuing in 2024, on pricing and operational efficiency, as well as the impact of lower surcharges, have resulted in a significant improvement in underlying operating margin to 11.3% (HY23: 9.3%)

Fabrication and distribution

·    Revenues decreased by 6% compared to the comparative period, predominantly driven by reduced volumes in our distribution network, offset by our social housing facing fabricators, who saw an improvement in demand

·    Increased competition for limited demand continues to drive pressure on margins in the distribution network. The Group's approach continues to be focussed on balancing volume and profitability through responsible pricing, with operating margins in line with H1 2023 despite the challenging trading conditions

Strategic progress

The Group's focus continues to be on product and material development, operational efficiency, identifying and completing value‐enhancing acquisitions and building on the Group's inherent sustainability credentials.

Operational efficiency and leverage

Against a challenging market backdrop and as sector-wide volumes softened compared to the prior period, the Group maintained a sharp focus on operational efficiency and cost reduction initiatives. Industry-leading manufacturing performance and continually improving working practices contributed to enhanced operating profit margins.

Across our key manufacturing locations, materials efficiency and scrap rates continue to be closely monitored alongside quality indicators. We strive for operational excellence and continue to see improvement across all metrics from already strong starting points, driven by a focus on the fundamentals, promoting a culture of continuous improvement and the engagement of our employees.

During the first half the Group was able to maintain our high standards of customer service, while optimising inventory levels, to ensure we meet customer needs through competitive lead times, with a low level of back orders across our product range.

The roll-out of the consolidated IT system across our distribution network, which commenced in 2023, completed as anticipated during the first half of the year. The single system is delivering the expected benefits of improved information flow, enabling more streamlined reporting and simplified monitoring of KPIs, whilst providing enhanced information at a branch level to support sales.

Value-enhancing acquisitions

Completion of selective, value enhancing acquisitions remains a core part of the Group's strategy and there continues to be a healthy pipeline of further potential acquisitions that the Group may seek to progress.

During the period, and to the date of this report, the Group spent £1.9 million on selective bolt-on acquisitions expanding both its trade counter network and its glass-reinforced plastic ("GRP") moulding businesses.

Sustainability

The Group continues to view sustainability as being fundamental to our corporate strategy. As a manufacturer of sustainable building products, we see the Group having a significant opportunity in the UK's journey to net zero and as part of efforts to address the shortage of affordable and energy efficient homes, in addition to under investment in the existing housing stock.

As a manufacturing Group, we have a relentless focus on the efficiency of our operations and during the period we have continued to take strides on energy efficiency and the elimination of waste in our manufacturing processes as well as improving vehicle loading and utilisation across our HGV fleet. This is important as both an environmentally-responsible and financially-responsible business, as operational efficiencies have contributed to the further improvement in operating margins.

In addition to increased processing of recycled materials, which remains a core part of our sustainability strategy, a key focus during the period has been further investment in our sustainability-related reporting capabilities. Governance structures continue to develop, as we work towards formalising meaningful KPIs and targets to support the UK's net zero strategy, and the Group's Sustainability Forum, established in 2023 and chaired by an Executive Director, is meeting quarterly and will begin reporting to the Board.

Cash flow

Operating cash flows

The Group remains highly cash generative, achieving a pre-tax operating cash flow of £15.8 million (HY23: £19.1 million), representing an underlying operating cash conversion of 132%. The first half of 2024 saw an expected increase in working capital due to seasonality.

Investing cash flows

Capital expenditure of £4.3 million (HY23: £3.5 million) represents an increase compared to H1 2023, as the Group continues to invest in line with its strategic objectives. Capital expenditure continues to be focussed on driving operational efficiency alongside tooling to expand the Group's material re-processing capabilities and ability to incorporate recycled material into our core products.

In addition, the Group spent £0.6 million on a bolt-on acquisition which expands its trade counter network in Scotland.

Financing cash flows

The interest cost of £1.4 million (HY23: £1.5 million) was broadly in line with the prior year, as interest rates remain high, offset by a focus on cash management resulting in reduced average levels of RCF drawdown compared to the prior period.

Covenant net debt has increased to £19.5 million from £14.4 million as at 31 December 2023, primarily due to the expected increase in working capital during the first half of the year, the payment of the final dividend in respect of 2023 of £4.0 million and a £3.3 million net outflow relating to the purchase of own shares under the share buyback programme.

At 30 June 2024, the Group had in excess of £55 million headroom on its existing banking facilities which comprise a £65 million Sustainability Linked Loan revolving credit facility through to August 2026 and a £10 million overdraft facility. Since 30 June, the Group extended the revolving credit facility to August 2027 on the same terms.

Shareholder returns

The Board recognises the importance of dividends to shareholders and, taking into account the outlook for the Group and our strong financial position, has declared an interim dividend of 2.10 pence per share (HY23: 2.00 pence), representing an increase on the prior period of 5%. The dividend will be paid on 8 October 2024 to shareholders on the register on 20 September 2024, and is in line with the Board's policy.

The initial share buyback programme, announced in November 2023, completed in April 2024 having repurchased 3 million shares. This was extended by 3 million shares and, to the date of this report, a further 2.9 million shares have been repurchased and cancelled under the programme, at a cost of £2.6 million. Additionally, the Group repurchased 0.7 million shares, at a cost of £0.6 million, following the vesting and exercise of options under the Group SAYE scheme in January 2024.

The extended programme is close to completion and the Group intends to continue the share buyback programme for a further 5 million shares. This buyback programme recognises the fact that our strong cash generation and balance sheet provide the opportunity to take advantage of market conditions to repurchase shares at attractive levels and return additional funds to shareholders.

Outlook

The Group's trading performance during H1 2024 has demonstrated our continued resilience and ability to deliver on profit expectations despite the challenging trading environment.

Despite a continued shortage of new homes, and following 20-30% reductions in completions in 2023, most housebuilders are expecting the number of completions to fall again in 2024. However, the moderation of interest and mortgage rates will improve the affordability of homes for potential buyers, with housebuilders beginning to report increased enquiries and reservation rates going into H2 2024 and anticipating growth in 2025 and beyond.

The improving economic outlook should also drive a recovery in the private housing RMI market as both potential homebuyers and existing homeowners benefit from sustained real wage growth, normalising inflation levels and interest rate cuts, with the Construction Products Association ("CPA") forecasting a return to growth for the RMI market in 2025.

Social housing RMI is increasingly considered to be a priority and there is a growing focus on decarbonisation of the public housing stock and the need for urgent improvements to the general condition of social housing. The CPA is forecasting modest growth of 2% for 2024 and 2025, which is currently being borne out in our social facing businesses who are seeing improved demand and fewer deferments of contract start dates, which have impacted the business in recent years.

The medium to long-term drivers for the Group's core markets remain positive. The UK continues to face a shortage of new and affordable housing and we are encouraged that the new government has reinforced commitments to housebuilding targets and easing planning constraints. Meanwhile, the UK's existing housing stock is ageing and underinvested, with increasing concerns about building safety and performance, and the Group's sustainable building products have a clear role to play in the upgrading and decarbonisation necessary to improve living standards and meet net zero commitments.

We anticipate that the trading environment will remain challenging during the second half of 2024. However, the Group's broad product range, diverse customer base, well-invested operations, flexible cost base, longstanding supplier relationships and strong balance sheet provide a large measure of resilience. We continue to focus on responsibly balancing volume and margin, meeting the needs of our customers, disciplined cost management and operational efficiency alongside our core strategic objectives. As a result, the Board remains confident of the Group delivering underlying operating profit for the full year in line with expectations, as well as for its medium and long-term prospects.

Condensed consolidated statement of changes in equity
for the six months ended 30 June 2024 (unaudited)

for the six months ended 30 June 2023 (unaudited)

for the year ended 31 December 2023 (audited)

Notes to the condensed consolidated financial statements

for the six months ended 30 June 2024

1.   Basis of preparation

These financial statements have been prepared on the basis of the accounting policies expected to be adopted for the year ended 31 December 2024.  These are in accordance with the accounting policies as set out in the Group's consolidated financial statements for the year ended 31 December 2023.

The recognition and measurement requirements of all UK-adopted International Accounting Standards as required to be adopted by AIM listed companies have been applied. AIM listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

The financial information in these financial statements does not constitute statutory accounts for the six months ended 30 June 2024 and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2023 which were unqualified and did not contain statements under sections 498(2) and (3) Companies Act 2006.

The condensed consolidated financial statements for the six months to 30 June 2024 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

The condensed consolidated financial statements were approved by the Board of Directors on 11 September 2024.

Going concern

These condensed financial statements have been prepared on the going concern basis, as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

As disclosed in the FY23 Annual Report and Accounts, the Directors prepared cash flow forecasts for a period of at least 12 months from the date of approval of those financial statements which indicated that, taking account of reasonably possible downsides and wider macroeconomic conditions on the operations and its financial resources, the Group had sufficient funds to meet its liabilities as they fell due. Actual revenues, profits and cash flows during the 6 months to 30 June 2024 and current financial projections indicate that the Group continues to have sufficient funds to meet its liabilities as they fall due. As such, the Directors believe that it remains appropriate for the Group to continue to adopt the going concern basis in preparing these condensed financial statements.

The Group's balance sheet remains robust and it retains significant headroom on committed banking facilities through to August 2027. The bank facilities available to the Group comprise a £65 million Revolving Credit Facility and a £10 million overdraft facility. At 30 June 2024 the Group had in excess of £55 million of headroom on its banking facilities.

Based on the above, the Directors believe that it remains appropriate for the Group to continue to adopt the going concern basis in preparing these condensed financial statements.

2.   Segmental reporting

Segmental information is presented in respect of the Group's reportable operating segments in line with IFRS 8 'Operating Segments', which requires segmental information to be disclosed on the same basis as it is viewed internally by the Chief Operating Decision Maker.

Reportable segments                    Operations

Extrusion and moulding                Extrusion and marketing of PVC and aluminium window profile systems, PVC cellular roofline and cladding, decking, rigid rainwater and drainage products as well as Wood Plastic Composite ("WPC") and aluminium decking products. Moulding of Glass Reinforced Plastic ("GRP") building components. Re-processing of PVC waste.

Fabrication and distribution         Fabrication, marketing and distribution of windows and doors, cellular roofline, cladding, rainwater, drainage and decking products.

3.   Underlying operating profit

Operating profit is stated after charging/(crediting) the following non-underlying items:

Amortisation of acquired other intangible assets

£0.5 million (HY23: £0.5 million) amortisation of brand and customer contract intangible assets acquired through business combinations.

Share-based payments expense

The share-based payment expense of £0.3 million (HY23 £0.3 million) represents the IFRS 2: Share-based payments charge in respect of the Long-Term Incentive Plan ("LTIP") established in May 2021 for senior management and the Group's Save As You Earn ("SAYE") scheme. During the period there was a further issue of options under the LTIP.

4.   Acquisition

During the period, the Group acquired the trade and assets of a single plastics distribution branch in Glasgow for total consideration of £0.6 million. The following table summarises the consideration paid and the provisional fair values of the assets and liabilities acquired at the acquisition date.

5.   Taxation

The tax charge for the six months to 30 June 2024 is based on the estimated tax rate for the full year.

As at the 30 June 2024 balance sheet date, the corporation tax rate was 25%. The net deferred tax liability has been calculated based on this rate.

6.   Earnings per share (EPS)

7.   Dividends

The Board has declared an interim dividend of 2.10 pence per share in respect of the financial year ended 31 December 2024.

8.   Net debt

The banking facilities available to the Group are a £65 million Sustainability Linked Loan facility and £10 million overdraft facility, secured on the assets of the Group. The revolving Sustainability Linked credit facility had a term through to August 2026 and, since 30 June, the Group extended these facilities to August 2027.

9.   Purchase of own shares

The table below presents a reconciliation of purchase of own shares between the consolidated statement of changes in equity and the consolidated cash flow statement:

On completion of the initial share buyback programme of 3 million ordinary shares in April 2024, the Group announced the commencement of a second share buyback programme for the repurchase of up to a further 3 million ordinary shares for cancellation. As at 30 June 2024, 1.9 million ordinary shares had been repurchased and cancelled in relation to the second buyback programme, at a total cost of £1.8 million. A liability of £1.0 million in respect of the remaining shares to be repurchased is included in Trade and other payables.

10.  Cautionary statement

This document contains certain forward-looking statements with respect of the financial condition, results, operations and businesses of Epwin Group Plc. Whilst these statements are made in good faith based on information available at the time of approval, these statements and forecasts inherently involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause the actual result or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this document should be construed as a profit forecast.

11.  Copies of this half year report

Further copies of this half year report are available from the registered office: Epwin Group Plc, Friars Gate, 1011 Stratford Road, Solihull, B90 4BN or on the Company's website www.epwin.co.uk